Bitcoin Rebounding Following Security Breach

Bitfinex is a Hong Kong-based digital currency exchange – one of the world’s leading such exchanges, and the self-proclaimed largest exchange by volume for trading bitcoin against the US Dollar.  On August 2, 2016, Bitfinex halted trading after discovering a security breach, including by taking its website offline and suspending all withdrawals and deposits.  At the same time, Bitfinex reported that approximately 120,000 BTC – valued at approximately $60 million (USD) – were lost or stolen in connection with the security breach.  In prior posts on August 9 and September 21, this blog addressed these events.

The news of the Bitfinex security breach immediately shook the bitcoin industry.  Indeed, on the day the breach was announced, the price of bitcoin plunged by more than 20% – from an opening price of approximately $607 down to a closing price of approximately $480.  The August 2, 2016 closing price of $480 per bitcoin also marked a decline of approximately 27% from the July 30, 2016 price of $658.28 per bitcoin.  The bitcoin price did not continue to drop so precipitously throughout the entire month, however, but it did decline nearly nine percent throughout August 2016 as a whole.

Although the Bitfinex news had an immediate and profound impact on the bitcoin market, it has not appeared to have the lasting impact that some may have feared.  Indeed, in September 2016, the price of bitcoin rose by approximately 6%.  Moreover, the BitMEX 30-day Historical Volatility Index averaged approximately 25% in September 2016, which was half of the August 2016 30-day average of approximately 50%.  It has taken nearly three months, but as of late October 2016, the BTC/USD exchange rate finally has climbed back to the $650 per Bitcoin.  The precise reasons driving bitcoin’s resurgence are the subject of debate, though some compellingly suggest that the recent rise in bitcoin prices is attributable to the fact that Chinese speculators and investors are focusing on the digital currency space because the yuan recently has been devalued.  Whatever the reason may be, it appears that Bitfinex’s security breach may be a minor blip on the radar, and nothing close to the death knell for the digital currency industry.